Thursday, 4 June 2015

Most don't know how to exit the chakravyuh: Ravi Narayan

Microsoft
Ventures has played a leading role in India's startup eco-system with
the accelerator programme it started in 2012. Its managing director, Ravi Narayan, has been a successful entrepreneur and investor.

Your programme has now had six batches of startups. Do you see the profile of entrepreneurs changing from the time you started?

More people with matured careers are coming now. They are a lot surer
of themselves. There is a lot of hype about students directly coming out
of IITs and IIMs to become entrepreneurs. It is not something that
should be hyped up. If they have the talent, let them do it. But it
should be more an exception than a rule. If you want to take an
entrepreneurial risk early in your career, that is fine. But not
everybody is a Mark Zuckerberg. It could be that you are completely
unencumbered by what is around you, could have fresh thinking, a new
perspective, but on the other side, you could have no clue how a product
should be built, you may not know how to negotiate a contract, you may
not know how to manage a team. There should be a happy balance. India is
a very unorganized market and you need organizational skills.

Do
you have Rahul Yadav in mind when you say this (Yadav, a student at IIT
when he co-founded Housing, recently had run-ins with his investors and
others)?

No I don't. It's just a general comment.
Everybody has a right place and a right time to found ventures. Some
people find it early. But if somebody is not ready, they should not be
encouraged to take that path.

You have spoken about startups being stuck in an Abhimanyu chakravyuh, unable to get out. Can you explain what exactly you mean?

Entrepreneurs in Silicon Valley invariably have a clear exit strategy -
like who is a potential acquirer or how will an IPO take place. Any
investor will want to know, if I put in money, when will I get it back.
In India, when investors ask this question, earlier entrepreneurs would
be shy about answering it. Now, they will say, if I build this,
such-and-such company could acquire me. The investor will then usually
ask, is acquisition your exit strategy. Then they will say, "No, no, I
can also go for an IPO." There is no clear answer or perspective to
this. So they will have two slides, one for the acquisition exit
strategy and one for an IPO. Depending on what they think the investors
want, they will swap it. An investor asks only to know whether the
founders have thought through this properly till exit.

You don't see growth and profitability as an option to get out of the Chakravyuh?

Like Zoho, for instance, is trying to do.

In that case you should not take money from VCs. VCs have a time-bound
contract to their capital providers; they have to return the principal
plus something. That is why this is highly risky as well as rewarding.
And there is never nirvana. If you raise seed money, you have to look
for Series A, and then Series B, and after many rounds of fund raising,
you look for an IPO; and then you have to look at the results every
quarter.

How feasible is an IPO as an exit strategy?

IPOs are beginning to take off in Silicon Valley. But generally, you
have to be an Unicorn (billion dollar in valuation) to go IPO.

Do you favour the idea of a separate exchange for startups?

These have been attempted several times around the world, but none have
really succeeded, barring in London. They impose certain levels of
compliance that startups may not be up to. The concept has to be really
thought through, especially the compliance requirements, before it is
introduced.

How do you see other elements of maturity in Indian startups?

There was a time when entrepreneurs started ventures without even
thinking about who the customers could be. Now, some of them have IP,
they have customers, have good talent, they know they can be acquired by
global companies. But the other side is, many are still not clear what
acquirers value. Companies who acquire may only want the IP, or only the
talent, or only the customers. They might want only one thing or a
small piece of one thing. But the entrepreneurs think, we have all of
these, why don't they value everything. The startups should know
precisely what is the value they are creating and for whom.

Would you recommend building products for the global market or the Indian market?

The opportunities in India are huge. It is better to build the product
here in India, test it here, and then try to go global like Zomato did.
Your value proposition will go up. I foresee tech unicorns--beyond
e-commerce--in the next few years from India.

How focussed is Satya Nadella (Microsoft CEO) on the startup accelerator initiative?

Early in his job, Nadella came to the Valley and held discussions with
VCs. He asked what we should be doing differently at Microsoft and the
VCs gave him feedback. These VCs have a fair understanding of how the
global markets are changing. That is also one of the reasons why we are
establishing a Valley office now. This will give us a chance to engage
deeper with VCs as we evolve and make internal decisions based on that.